Building a nest egg: Savings and Investment options

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Under the general term “retirement plans” fall many options for saving and investing money for retirement. Such financial retirement plans may be either individual plans or employer-related plans, and typically they have certain tax benefits over other savings and investment strategies. The most familiar individual plans are IRAs, Individual Retirement Accounts. Employer-related plans may be “defined benefit plans,” which are traditional company pension plans that promise a specific monthly benefit upon retirement, or “defined contribution plans,” such as 401(k)s or profit-sharing plans, in which contributions by employees and employers are defined but the benefit to be paid is not.

In some cases, you can have both a 401(k) or other employer-sponsored retirement plan and an IRA. Many financial planners recommend this approach.

What You Should Know About Your Retirement Plan from the Employee Benefits Security Administration provides an excellent overview of the types of employee-related retirement plans and information to help you use them effectively.

Retirement Plan Primer from Motley Fool provides brief, info-packed definitions of the most common retirement plans and the terminology associated with them. The information was last updated in 2002 but is still sound.

You may review a variety of articles on retirement investment strategies at MSN Money, CNN/Money, Kiplinger, and Forbes. If you have configured your browser to reject cookies, then you may not be able to access some of these articles.

IRAs – Individual Retirement Accounts

IRAs are a personal retirement savings plan that you can open at a credit union, bank, brokerage or other IRS-approved entity.

Individual Retirement Accounts from AARP gives you a quick introduction.

All About IRAs from the Motley Fool covers all the basics about IRAs, defines the eleven types of IRAs, and is particular strong in its discussion of Roth IRAs (where your contributions are not tax-deductible but your withdrawals at retirement including earnings are not subject to tax).

Individual Retirement Accounts: Something for Everyone from Bankrate.com, provides brief descriptions of tradition IRA, Roth IRA, Education IRA (Coverdell ESA), SEP-IRA (Simplified Employee Pension), and SIMPLE IRA (Savings Incentive Match Plans).

An IRA Owner’s Manual from Kiplinger.com covers criteria for qualification, regular IRA vs. Roth, moving your IRA, tapping an IRA early, withdrawing funds for retirement.

The ABCs of IRAs offers five quick lessons on establishing and managing the IRA that’s right for you. A chapter on using an IRA for real estate investing may be of interest.

Publication 590: Individual Retirement Arrangements from the IRS offers the facts from the source. After you’ve checked out the primers above you may wish to access the official word. Our link is to the latest edition.

401(k) Plans

A 401(k) plan is similar to an IRA except that it is established by an employer. It is funded with your pre-tax salary contributions and possibly with matching contributions from your employer. Typically, larger contributions can be made to 401(k)s than to most IRAs. The money in your 401(k) account is tax-deferred until you withdraw the money.

401(k) plans is a Life Advice brochure prepared for the Federal Consumer Information Center (FCIC) by MetLife. It offers a clear, basic overview.

A Look At 401(k) Plan Fees from the Employee Benefits Security Administration (EBSA), Department of Labor discusses the impact on potential earnings of the fees associated with 401(k) plans and how to understand them and manage them. Also from EBSA, Warning Signs That 401(k) Contributions Are Being Misused flags ten dangers to watch for.

Company in trouble? Protect your 401(k) offers tips from Bankrate.com

401khelpcenter.com provides an archive of articles related to 401(k) plans on such topics as managing your 401(k) assets, rollovers, and pros and cons of loans from 401(k) assets.

Is Your 401(k) Foolish? is a ten-article series from Motley Fool that gives a good overview of 401(k) issues.

The SmartMoney 401(k) Planner groups together a selection of articles and worksheets from SmartMoney.com. Many are useful, but the site does use popups to solicit subscriptions for SmartMoney magazine.

SEP Retirement Plans

A SEP plan—simplified employee pension—is an IRA (SEP_IRA) that has been set up to receive contributions from your employer. You may also have a SEP-IRA if you are self-employed. The SEP-IRA is owned and controlled by you. The maximum amount an employer can contribute to your SEP-IRA is the smaller of 25% of your compensation or $44,000 (for 2006 and subject to cost-of-living adjustments for later years).

SEP Retirement Plans for Small Business from the EBSA describes the advantages of a SEP plan and how to establish and maintain a plan.

Publication 560: Retirement Plans for Small Business from the IRS details retirement plans, including SEP plans, that you can set up and maintain for yourself (if self-employed) and your employees.

SIMPLE Retirement Plans

A SIMPLE—Savings Incentive Match Plan for Employees—is established by a small employer (including self-employed persons). This type of plan allows an employee to reduce their salary and have their employer contribute the salary reduction to a SIMPLE retirement account. The employer must also make contributions to the account. The SIMPLE retirement account can be either a SIMPLE IRA or as part of a 401(k) plan.

SIMPLE IRA Plans for Small Businesses from the EBSA describes the advantages of a SIMPLE plan and how to establish and operate a plan. You'll need Acrobat Reader to open this file.

Publication 560: Retirement Plans for Small Business from the IRS details retirement plans, including SEP plans, that you can set up and maintain for yourself (if self-employed) and your employees.

Publication 590: Individual Retirement Arrangements from the IRS offers the facts from the source. Chapter 3 discusses SIMPLE plans.

Employer Pension Plans

A Predictable, Secure Pension for Life: Defined Benefit Pensions
This publication from the Pension Benefit Guaranty Corporation (PBGC) provides “a handy explanation of traditional defined benefit pension plans insured by PBGC: what they are, how they operate, and the rights and options of the workers covered by them.”

Your Guaranteed Pension covers frequently asked questions on traditional pensions that are guaranteed by the Pension Benefit Guaranty Corporation (PBGC). Questions relate specifically to how PBGC insurance works, how you can find out if your pension is insured, and what that guarantee may mean for your pension.

Protect Your Pension – a Quick Reference Guide from the Employee Benefits Security Administration (EBSA), Department of Labor provides an overview of what you should know about “private sector pension plans where someone, such as a trustee or investment manager, is responsible for investing the plan's assets.”

Frequently Asked Questions About Cash Balance Pension Plans from the EBSA provides an overview of this type of defined benefit plan that operates more like a “defined contribution” plan and defines its benefits on the basis of a “stated account balance”—think of it as a kind of hybrid plan. The questions answered include how cash balance plans differ from traditional pension plans and from “defined contribution” plans, such as 401(k) or profit-sharing plans.

The Pension Rights Project provides information and counseling for persons in the project service areas who are having problems with their pensions.

Social Security Benefits

The Social Security Administration is the place to start for information on Social Security benefits, your personal statement, how the timing of your retirement will affect benefits, and how to apply for benefits.

Working in Retirement

Help Wanted: from Retirement to Work from Kiplinger’s Magazine discusses the pros and cons of returning to work, strategies for how to find a job, and tips for dealing with Social Security (such as impact on benefit payments) and other benefits issues.

How Work Affects Your Benefits from the Social Security Administration enables you to see what impact earnings from a job might have on the amount of your monthly check and other benefits.

 

Prepared for Corning Credit Union by Remar Sutton & Associates, May 2005. Reviewed and updated July 2009. All rights reserved.